INTRODUCTION TO THE CASE-

Winfield Refuse Management Inc is a waste management company that provides refuse
collection facilities, landfills, and recycling services. The company has been growing steadily
over the past few years. Its management team is deciding whether to raise the capital through
debt or equity to finance its expansion plans.
This case study revolves around various characteristics of debt and common stock that present
the key issues that are very important for any company in making long-term decisions. The
case also lays emphasis on the arguments between choosing debt v/s equity and both
financing options have their own advantages and disadvantages Winfield has chosen to
acquire MPIS, a bigger and more ambitious concentrate for the company, in order to preserve
its edge in the market against its more potent rivals in the waste management sector.. With the
acquisition of MPIS, the company would require external financing as the company had
followed the policy of avoiding long-term debts and the management team managed to
question this type of strategy by arguing that the financing option of debt is better than
equity/common stocks

PROBLEM STATEMENT-
Winfield Management is in the dilemma of raising what type of capital to finance its
expansion plans, as the management team is very unsure whether to raise debt or equity to
expand its financial operations.
The company has been growing steadily and must invest in new equipment, technologies, and
facilities to gain a competitive edge in the waste management industry. However, the team has
to weigh both the gains and losses of each of the financing options and make a decision on
determining which option is highly suitable for the company’s financial position and situation
in the short-term and long-term, risks associated with the selected options, and design an
appropriate growth strategy.

ADVANTAGES AND DISADVANTAGES OF RAISING DEBT-

ADVANTAGES DISADVANTAGES
 Interest on debt is tax deductible, which  Risky, as it increases the leverage of the
will decrease the company’s tax. company, especially when there are
 This type of financing will not dilute the economic downturns
ownership or have control over the  If the interest rates are high, then it can
company be a burden to the company.
 Lowest cost of capital in comparison  The company will be considered a
with equity, especially when the Default if it does not re-pay its debt on
prevailing interest rates are low. time which will damage the credit
 There is a fixed repayment schedule to reputation of the company.
manage the cashflows.  Collaterals and properties might be
required sometimes in order to take debt,
which will limit the flexibility of the
company.
 ADVANTAGES AND DISADVANTAGES OF RAISING EQUITY

ADVANTAGES DISADVANTAGES
 Repayment is not necessary as it will  This option will dilute ownership and
reduce the company’s financial burden control of the company in the
 This option does not require any decision-making processes.
collateral, properties, etc.  Expensive financing option compared
 This type of option will increase the to debt.
company’s credibility.  This option will not provide any tax
 It will provide access to a wide range benefits.
of expertise networks with the  It will require more information to be
company’s investors. disclosed to the company’s investors
or stakeholders.

According to the directors of the company, an overview of the financing effect on capital
structure decisions was done as follows-
 a. Andrea Winfield
This director makes 2 points in arguing for the issue of equity/common stock-

 The annual principal repayments must be considered in the financial cost calculation.
 Adding debt would again in turn increase the risk factor of the company due to the
fluctuations in stock price.

I would agree to these policies as these principal repayments must be calculated and these
form to be the real cashflows of the company.
The second argument is also apt, as it considers the stock price volatility and in case the total
debt is high, the risk would also be high.

b. Ted kale
This director argues against the issuance of a new equity/common stock
 Control being diluted in the company
 Price-earnings ratio has been low relative to other competitors.

Based on data given in exhibit 1 in the case, the P/V ratio of Winfield is lower than that of its
competitors. The case also states that the company’s family had 79% of the stock and Kale’s
concern is to have certain voting limitations and issuing different classes of shares.

c. Joseph Winfield
This director makes an argument on MIPS-
 No MIPS pays
 No business will make an investment that did not pay for itself.

Generating enough cash flow for the company to maintain the same dividend payout as before
is very important.

a. CONTROL-
The dilution of ownership need not be in control and the issue of control is not significant as
provided by majority owners to be in alignment.

b. FLEXIBILITY
The cashflows and health of the company’s operations are related to each other and the
cashflows must be significant and this was not in lane regarding Winfield’s decision.

c. INCOME
Historical patterns of earnings must be assessed in order to foresee the performance of both
financing options. The EPS would be more than the debt option, and this is the reason most
of the directors choose the equity option over the debt option.
d. RISK
Risk considerations to Winfield are more in raising debt than the equity option as the
cashflows is recognized by debt financing and through equity only the earnings could be
recognized.

CONCLUSION/RECOMMENDATIONS-

In the case of Winfield refuse management Inc, both the options of financing debt and equity
have their own pros and cons.
Raising debt can provide immediate funds without the dilution of ownership as it comes with
the risk of financial instability, on the other hand, issuing equity could provide the company
with long-term funds for expansion but it can be risky, costly, and dilute ownership.
Winfield can make its decision based on its financial decision and consider the preferences of
its current shareholders and potential investors. The company can choose debt as its financing
option.